1977 (3) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of the term "chargeable profits" under the Companies (Profits) Surtax Act, 1964.
2. Determination of whether the net or gross dividend should be excluded while computing chargeable profits.
3. Application of sections 57 and 80M of the Income-tax Act in the context of the Surtax Act.

Detailed Analysis:

1. Interpretation of the term "chargeable profits" under the Companies (Profits) Surtax Act, 1964:
The court examined the definition of "chargeable profits" as provided in section 2(5) of the Companies (Profits) Surtax Act, 1964, which states:
>"'chargeable profits' means the total income of an assessee computed under the Income-tax Act, 1961, for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the First Schedule."

The court emphasized the integral connection between the Surtax Act and the Income-tax Act, as highlighted by clause (9) of section 2, which mandates that all words and expressions not defined in the Surtax Act but defined in the Income-tax Act shall carry the same meanings.

2. Determination of whether the net or gross dividend should be excluded while computing chargeable profits:
The primary legal question was:
>"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that only the net dividend of Rs. 67,282 can be excluded and not the gross dividend of Rs. 1,71,204 while computing the chargeable profits under the Companies (Profits) Surtax Act, 1964, for the assessment year 1971-72?"

The court analyzed the First Schedule of the Surtax Act, particularly rule 1(viii), which states:
>"Income by way of dividends from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends within India."

The court concluded that the entirety of the dividends should be excluded, unaffected by the provisions of section 57 and section 80M of the Income-tax Act. The court reasoned that there was no warrant to detract from the generality of the words "income by way of dividends" to confine these words only to such income as had been reduced by applying the provisions of section 57 or section 80M.

3. Application of sections 57 and 80M of the Income-tax Act in the context of the Surtax Act:
The court reviewed sections 57 and 80M of the Income-tax Act. Section 57 deals with deductions in respect of income from dividends, while section 80M provides for deductions in respect of certain inter-corporate dividends. The court noted that these sections are part of an integrated scheme for determining total income under the Income-tax Act.

However, the court held that for the purpose of the Surtax Act, the adjustment should be made based on the entirety of the dividends received without applying the deductions under sections 57 and 80M. The court referred to previous judgments, including those of the Madras High Court and the Bombay High Court, but found them not directly applicable to the present case.

The court concluded:
>"We see no warrant to detract from the generality of the words 'income by way of dividends' and to confine these words only to such income as had been reduced by applying the provisions of section 57 or section 80M or any other provisions of the Income-tax Act."

Conclusion:
The court answered the question of law in the negative, in favor of the assessee and against the department, holding that the entirety of the dividends should be excluded while computing chargeable profits under the Companies (Profits) Surtax Act, 1964. The court made no order as to costs and directed that a copy of the judgment be communicated to the Appellate Tribunal.